Amid growing geopolitical uncertainties and global market volatility, investors are increasingly encouraged to look beyond domestic opportunities and take a more diversified approach.
Himanshu Kohli, co-founder of Client Associates, suggests that allocating 10-25% of your wallet has international markets can help build resilience, diversify currencies and seize opportunities across countries. global economies.
He points out that exchange-traded funds (ETFs) offer a cost-effective and efficient way to achieve this diversification across stocks, bonds, gold and global markets.
In an environment marked by changing macroeconomic dynamics and commodity-driven volatility, Kohli emphasizes that a disciplined asset allocation strategy, supported by ETFs and periodic rebalancing, can help investors navigate uncertainty while remaining aligned with their long-term financial goals. Edited extracts –
Q) Geopolitical tensions appear to be intensifying in all regions. How should global investors interpret these developments from a macroeconomic and market perspective?
A) From a macroeconomic perspective, markets are currently reassessing growth risk amid geopolitical tensions, leading to an increase in the risk premium. At the microeconomic level, the focus should be on the fundamentals, such as the balance sheets of different economies and companies. At this point, stock selection and balance sheet strength will matter far more than talk of momentum.
In the context of current geopolitical tensions, it is appropriate not to exit the market at the moment. There might be some value buying available, and this is a good opportunity to accumulate positions. However, investors should prepare for higher volatility and a longer time horizon.
Although some suggest holding stocks for 3-5 years, we recommend an accumulation strategy for 6 months and holding investments for 5 years. Global investors need to diversify their investments across asset classes, geographies, currencies and markets.
Q) Historically, markets tend to react strongly to geopolitical shocks, but recover quickly. Is it time to diversify globally and which markets look attractive?
A) We have observed in the past, like during the 2008 financial crisis, that after about 8-9 months of turmoil, things consolidated and we saw a V-shaped recovery. During the COVID-19 pandemic, we also saw a V-shaped recovery within a few months, followed by very bullish market trends.
However, this period presents a relatively new situation as energy and oil prices significantly influence markets. It also becomes difficult to predict whether it is a long-term or short-term conflict. We think it’s only a matter of time before we see improvements.
In our opinion, it will take a few months for the situation to stabilize. The upside of the current crisis is that overvaluation is being corrected, while undervalued markets are becoming much cheaper. As a result, markets become much more attractive.
It is important to note that you should not wait for the absolute bottom to invest, because it is almost impossible to identify. Instead, one should focus on accumulating stocks in accordance with their asset allocation strategy.
Plus, it makes perfect sense to diversify beyond India, as putting all your eggs in one basket can be risky. In fact, there are opportunities in some countries with strong energy sectors and oil resources that are worth exploring in the current scenario.
From a market perspective, US markets, particularly the S&P 500 and NASDAQlook promising after relative underperformance over the past 12-15 months, alongside emerging markets such as India (represented by the Nifty 50), Brazil, China and Hong Kong.
Q) How does the rise in crude oil prices and merchandise will volatility reshape the global investment landscape?
A) If the conflict persists for a longer period, high crude oil prices and commodity volatility could have significant consequences, including higher inflation and interest rates. As interest rates rise, profitability may decline, which will impact stock markets around the world. In such a scenario, we may see a shift in market leadership from growth to value.
Countries that are large importers of oil and other raw materials, such as India, will be severely affected. Therefore, volatility in Indian markets will be higher and in this scenario one will have to diversify beyond India if one wants to participate in stocks.
Additionally, diversification into other asset classes including gold and commodities, balanced funds, private credit, private equity and international markets. can help reduce volatility. This approach may prove more effective at present and, more specifically, gaining exposure to strong energy and oil markets will make more sense at present.
Q) What role does rebalancing play during volatile periods when asset prices move sharply due to geopolitical shocks?
A) Rebalancing is an effective risk mitigation technique that works particularly well in mean reversion asset classes such as stocks. When there is a change in asset allocation, rather than trying to predict market movements, one must react, and rebalancing is a reactive tool.
Therefore, in times of chaos and confusion, when markets often behave more intelligently than people, it is advisable to take a more passive approach. The rebalancing model should, however, remain active.
From now on, if the market becomes undervalued, you should not hesitate to increase your investment. For example, suppose a person is 50% invested in stocks and over the last month the markets fell 10%, then the stock allocation would have increased to 47%.
The rebalancing approach would advise returning to the original 50% allocation, which requires an immediate 3% adjustment. On the other hand, if the market is in an attractive valuation zone, it will then be necessary to increase the equity allocation to 55%.
In this case, a reallocation strategy would suggest adding 8%. We therefore recommend immediately increasing the allocation by 3%, then using a systematic investment plan (over 3-6 months) to gradually increase the investment by the remaining 5%, thus reaching 55%.
Q) How can investors use ETFs to achieve better asset allocation?
A) ETFs offer high liquidity and are profitable investment tools. They are effective tools for implementing asset allocation strategies and building portfolios that are diversified from stocks or actively managed funds. ETFs are widely available across geographies and can invest in stocks, bonds, gold and international markets.
They are also able to adapt to macroeconomic changes and maintain discipline during market shocks, making them very effective investment vehicles.
In some cases, ETFs can be mispriced, such as in the case of gold ETFs, which were trading at a premium due to high demand and supply shortages. This situation has led ETF holders to pay premiums. However, ETFs still offer a cost advantage.
For investors, instead of trying to figure out which stocks to buy, they can opt for stock, bond and international market ETFs. So we think it makes more sense to use ETFs to create robust asset allocation models. Additionally, investors may want to consider certain multi-asset allocation funds because the mathematical models working behind the scenes can improve investment strategies.
A multi-asset allocation fund manager will make decisions on stocks, gold, silver and other assets based on its proprietary models, which helps in timing entry and exit easily, unlike ETFs.
Finally, investors can also look at the global allocation funds launched under GIFT City IFSC, gaining exposure to ETFs covering different markets and disruptive global themes.
Q) What global ETF themes (such as technology, semiconductors or global indices) do you think investors should follow in the current environment?
A) The investor can have a core portfolio consisting of larger scale ETFs from international markets and a satellite portfolio in which tactical options are taken on a few themes. The core portfolio should be diversified and include broader indexes, such as the S&P 500 or NASDAQ ETFs.
It could also be beneficial to include broader exposure to markets such as Brazil, China and Hong Kong. We are positive on China due to policy measures, both in terms of monetary easing and fiscal support, while Brazil is a major power in raw materials and will benefit significantly from rising demand and prices for raw materials.
On the other hand, Hong Kong provides exposure to Chinese technology and consumer giants, many of which have improved their profitability. Furthermore, easing Chinese inflation and continued policy support are expected to lead to a recovery in corporate earnings cycles in 2026, thereby boosting confidence in Chinese technology and industrial stocks listed in Hong Kong.
For satellite investments, we could focus on themes such as energy, which could be a good complement at this time. We should also consider adding a theme related to defense and themes related to artificial intelligence (AI).
Q) Ideally, what percentage of capital should be globally diversified for someone aged 30-40? And if someone wants to deploy new capital, what would you advise?
A) The percentage of capital to be diversified globally should be determined by each person’s personal financial plan, depending on the degree of HNIThe country’s needs are met from Indian markets and a share comes from global markets.
For example, if one thinks about children’s education, this represents an international need, especially if one plans to send one’s children abroad for undergraduate or postgraduate studies. Additionally, vacations and traveling around the world are also important goals.
It is therefore essential to adopt a more us bottom-up in developing their financial plans. For needs-based wealth, we can identify needs and link them to financial goals; for excess wealth, a guideline is to allocate 10-25% to international markets. It is advisable to go beyond 25% if there is a possibility of family inheritance or if the beneficiaries are based abroad.
If someone wants to deploy new capital, 75-90% should always be invested in India, while 10-25% can be allocated to international funds, focusing on developed and emerging markets such as the US (S&P 500, NASDAQ), Brazil, China and Hong Kong.
(Disclaimer: The recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)
